For all the challenges facing Realtors this year in the current economic climate, 2022 is very different from the 2008 housing crisis.

That was just one of many observations made by economist Lisa Sturtevant, Ph.D., when she addressed the Chesapeake Bay & Rivers Association of Realtors at last Thursday’s membership meeting. Approximately 60 real estate professionals attended the dinner, which was held at Mobjack Tavern, White Marsh.

Sturtevant, who is Chief Economist for the Virginia Realtors trade organization, gave her outlook for the market in the months ahead. While Realtors face some major challenges in that market, the situation is not as dire as that faced by real estate professional in the aftermath of the 2008 housing bubble.

In her talk, Sturtevant pointed out some of the positive aspects of the current economic climate, such as strong, rebounding job numbers following the pandemic and pent-up demand from potential homebuyers. But those positives are set against an extremely limited inventory and concerns over inflation and hikes in interest rates.

Looking to comparisons with 2008, Sturtevant pointed out that the two situations are quite different. In 2008, she said, the market was faced with loose credit standards, extensive subprime lending, an abundant supply and surges in new construction activity and rising unemployment. This year, there are tight credit standards in place, little subprime lending, an extremely low inventory and little new construction, and falling unemployment numbers.

On job numbers, “we’re not back to pre-pandemic unemployment rates, but we’re pretty close,” Sturtevant said. Although the unemployment rate has rebounded fairly well from Covid, there’s another figure that is a little concerning—the labor force participation rate.

The number of people either employed or actively looking for employment dropped off in 2020 and has never really recovered. There are three main groups that are driving this number, she said, the first being those who opted to retire early. Three million more people nationwide opted for retirement this past year, compared to a normal year. “Those people are not coming back into the labor force,” she said.

The other two groups, she said, are those with “public-facing jobs” (such as those in restaurants or other service industry positions who interact with the public and still have concerns about the virus) and parents (“by and large, moms”) who stepped away from the workforce when schools and day care shutdown two years ago.

Those last two groups have begun to pick up recently as schools and day care facilities reopen and concerns over the pandemic begin to wane.

“We’re resetting a little bit,” Sturtevant said.

Consumer spending, spurred on by stimulus and expanded unemployment payments, kept the economy running, and as those funds have dried up, more people are returning to the labor force. Despite these positive signs, consumer sentiment about how the economy is doing is now at a 10-year low. “Why are we in such a bad mood,” Sturtevant asked.

The answer, she said, are concerns over inflation. “This is why we feel so bad,” she said. At 7.9 percent, inflation is at the highest level since the early 1980s. Inflation is more persistent than people thought it would be at first, she said, and will likely remain high for the foreseeable future.
Home prices have shot up faster than incomes, something that has been going on since about 2000. The jump in prices was more dramatic in the wake of Covid. In December 2019, the median price of a home in Virginia was $297,000. Twelve months later, that had jumped to $325,000. But that was more than offset by low mortgage payments due to low interest rates. In 2022, both prices and interest rates will continue to climb.

“We are back to pre-pandemic mortgage rates,” she said. Those numbers, however, are still well below historic highs. In 1981-82, interest rates averaged 17 percent, and yet “people still bought homes.”

Looking ahead to 2022 and beyond, Sturtevant said there are a few things she doesn’t expect. The first, she said, would be investors being a major player in the market. Investors, she said, make up only a small share of the Virginia housing market. In 2021, she said, only 6 percent of housing sales in Northern Virginia and 8 percent in Virginia Beach were the result of investor purchases.

The second thing that she doesn’t expect are foreclosures flooding the market. Foreclosures and delinquency continues to remain low, even after federal restrictions were lifted that were put in place during the height of the pandemic.

She cautioned those reading misleading headlines about the rise in foreclosures to remember that foreclosures at present represent about 0.1 percent. So, if a headline says that foreclosure rates are projected to double year-to-year, that doubling (0.2 percent) is really just a return to the pre-pandemic normal.

The third thing Sturtevant doesn’t expect is a housing market “bubble burst” like 2008. In 2008, inventory was flush with a lot of new construction. That simply isn’t the case today.

“I do expect buyer demand will remain very strong,” Sturtevant said, striking a somewhat positive note, adding that she also expects price growth to slow down.

Last Thursday’s membership meeting also served to raise funds and supplies for the Gloucester-Mathews Humane Society. The group collected $235 in cash donations as well as a large amount of food and other pet supplies that CBRAR members delivered to the animal shelter on Friday.